Budget 2014 aims at low prices via domestic manufacturing
Goutam Das July 10, 2014
Finance Minister Arun Jaitley mentioned "manufacturing" 16 times in his Budget speech, enough to bring smiles on the face of most manufacturers. From hi-tech chip companies, who need to invest billions in fabrication units, to the small and medium manufacturer who invests Rs 25 crore, there was something for everybody.
The Budget clearly made a case for more domestic manufacturing by doing away with the inverted duty structure for many products that made domestic manufacturing uncompetitive. Importing a finished IT hardware product, for instance, was more lucrative than manufacturing and selling it in India because of prevalent duties on electronic components used.
Jaitley now has corrected the anomaly. He has exempted all inputs and components used in the manufacture of personal computers from the four per cent special additional duty (SAD). He has also exempted SAD on PVC sheet and ribbon used for the manufacture of smart cards and on parts and raw materials required for the manufacture of wind-operated generators. Furthermore, the FM has imposed education cess on imported electronic products - that would bring parity between domestically manufactured products and imported ones.
"While it would boost domestic manufacturing of IT hardware, the only disappointment is that the SAD exemption has not been extended to all electronic products," Sunil Vachani, Chairman and Managing Director of Dixon, an electronic manufacturing service provider, said.
Vachani, nevertheless, will be happy with another announcement in the budget that seeks to encourage more domestic production of old generation television such as cathode ray TVs, which still has a big market in India. Jaitley has exempted colour picture tubes from basic customs duty to make cathode ray TVs cheaper. The duty concession may help revive manufacturing of such TVs. The FM has also done away the basic customs duty on LCD and LED TV panels of below 19 inches from 10 per cent to zero to encourage domestic production.
"We will see investments coming into the television sector in the next six months," Vachani hoped.
An important boost to domestic manufacturing could also come from investment-linked allowances. Last year's budget laid out an investment allowance for any manufacturing company that invested more than Rs 100 crore in plant and machinery. Jaitley has now extended similar benefits to small and medium manufacturers. He has provided investment allowance at the rate of 15 per cent to a manufacturing company that invests more than Rs 25 crore in a new plant and machinery. The benefit will be available for investments up to March 2017.
What is, perhaps, more heartening is the holistic approach visible in the budget. It is not just about exemptions like SAD meant for core manufacturing companies. According to Ashok Chandak, Chairman of India Electronics and Semiconductor Association, the FM's announcements point to encouraging what he calls "design-led manufacturing". India may not be able to compete with China when it comes to low-value, high volume manufacturing, but it can be competitive when it comes to high value products, which incorporate a lot of design and software. Jaitley's proposal to establish a Rs 10,000 crore fund to provide risk capital for start-ups is an indirect positive for the manufacturing sector.
There are two other enablers to manufacturing - infrastructure and skills. Changes in the Apprenticeship Act, hinted in the budget, as well as infrastructure projects such as 'smart cities', may have a long-term impact on growing the country's manufacturing sector.